Gold and silver miner Polymetal International (LSE: POLY) and building supplies firm Travis Perkins (LSE: TPK) are set to be demoted from the FTSE 100 when the FTSE committee announces the results of its final quarterly index review of 2016 on Wednesday.
Contrarian opportunities?
Polymetal was promoted to the FTSE 100 as recently as September, having made strong gains on the back of a resurgence in gold and silver prices. However, precious metals have since gone off the boil and Polymetal’s shares have fallen back a fair bit.
At yesterday’s market close the shares were at 769p, valuing the company at £3.28bn and ranking it at 120 in the FTSE All-Share index. A rank below 110 at the cut-off time (which is the close of trading today) means an automatic exit from the FTSE 100. The shares are trading at 765p as I’m writing, so Polymetal is heading for demotion to the second-tier FTSE 250.
The company has a good production growth and costs profile and is trading on a current-year forecast P/E of 9.2, falling to 8 for 2017. As such, the shares look very buyable to me at this level.
Travis Perkins was ranked at 115 in the All-Share index at yesterday’s close, with a market cap of £3.45bn at a share price of 1,378p. The shares are lower today — 1,350p as I’m writing — so this company is also set for automatic demotion to the FTSE 250.
The EU Referendum result hit Travis Perkins’ shares hard and a rally through July and August soon went into reverse. In a trading update in October, the company said it would be closing over 30 branches and pursuing supply chain efficiencies as it looks ahead to an uncertain 2017. Travis Perkins’ forward P/E of 11 isn’t cheap enough to tempt me, because I see a significant risk of earnings downgrades.
Newcomers
Convatec is in pole position to enter the FTSE 100. “Who?,” I hear you say.
Convatec was only floated on the stock market last month and is a medical products and technologies company focused on therapies for managing a number of chronic conditions, including advanced wound care.
The company has a market cap of £4.67bn at a share price of 239p, which is big enough to give it automatic entry to the top index, in which it will rank at number 88. This could be an interesting alternative to Smith & Nephew — the only current blue chip in the health care equipment & services sector — but I haven’t seen much analyst coverage of it so far. It’s one I’ll be keeping an eye on.
Finally, Smurfit Kappa just missed out on promotion to the FTSE 100 at the last quarterly review but looks set to join the elite this time round. If so, it will provide Footsie investors with an alternative packaging sector option to index incumbent Mondi.
